Things missing in Indian early-stage funds and things that need to be fixed

27th Jan 2017
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My experience after meeting more than 200 entrepreneurs and investors in a year:

After shutting down my venture two years ago, I had decided that I wanted to build global consumer products. It was a very sad decision for me to leave my own baby and start looking for another journey where I could learn and create impact with my hustle and experience of failing at an early-stage startup. I started working with startups and small funds in the Bay Area and Singapore, where I interacted with a lot of entrepreneurs, always trying to help them in whatever way possible.

During these interactions I became used to a feeling of incompleteness; it sat on my shoulders like a ghost. I felt a vacuum, an urgent void. It became clear that something crucial is missing here in India. Most of the time, these young entrepreneurs came to me with similar underlying problems like finding the right target audience for the product, product positioning, launching the products, etc. But I used to think about why they were coming to me when they had actual business people, the real investors, working with them.

Is money the only thing required to run a business? If that were so, rich people would never fail at startups. It seems that investors are just writing the cheque and are not able to give the proper direction required for an early-stage team.

I’m very fascinated by the way Chamath is building Social+Capital in the Valley and creating some incredible impact while backing companies like Front and Slack. They are not just writing the first cheque — they have built a fantastic in-house team that works with these startups very carefully to scale faster. There are also some others like Binary Capital, Peach.vc, First Round Capital, a16z, and KPCB which inspired me to dig out more about Indian early- stage funds. What I discovered was very discomfiting.

After researching more, I found out that most of the time startups get investors just for the sake of few thousand dollars, and there is no other tangible value. I started talking to more people in my network about this problem and tried to understand what other funds are doing in different countries.

I have found that these are the things needed for an early-stage startup:

 

  1. Early money: Some money which they could use in hiring the right talent required most in their venture and proving product-market fit for themselves. However, they shouldn’t take these funds as investor money — they should take these funds as a liability so that they can understand the value of every penny spent. They should understand that this investment is the minimum amount of money the business is supposed to now make to succeed.
  2. Right set of mentors: Startup founders are mostly first-time entrepreneurs, who are building their ventures because of their passion for impact and change. However, they need people who can engage with them on a daily basis and advise them on the things they shouldn’t do. They need people who’ve experienced similar problems while building their businesses.

Right now, founders usually get some famous names to come on board just for the name’s sake, but the value and impact are missing. No one is guiding or helping them hire the right team, deal with customer acquisition, and overall, build a viral product. Founders are busy trying out everything available on this noisy internet, rather than acting on available experience.

Founders’ top concerns are talent and customer acquisition.

First Round Capital’s report of the past two years has made it clear that access to the right talent and the right ways of customer acquisition are the biggest problems for an early-stage startup.

Entrepreneurs have started focusing more on customer numbers and have forgotten the rule of super users which can let you scale business with hockey stick curve.

I had begun dating Indian early stage funds to see if my experience with multiple early-stage startups can add value to their portfolio companies. I have dated almost every stage funds here in India and come up with the conclusion that nobody can understand the things I wanted to tell them. These early-stage funds are a critical part of the Indian startup ecosystem, and they are missing the key point of value creation, which is more important than just writing cheques.

Never reduce a target. Instead, increase actions. When you start rethinking your goals, making excuses and letting yourself off the hook, you are giving up on your dreams! — Grant Cardone

Most are following the “how things have always been done” attitude. We have to find our true north and push past the default.

Our ecosystem needs to change in the way early-stage funds have been working till now. We need to think more from the value-creation perspective, otherwise, we won’t be able to get the best out of the potential our country has.

So what are the possible changes that could be made?

 

  1. Community building: If you are an early-stage fund, why don’t you build a community of founders where everybody can help each other with their expertise and network rather than fighting with each other? Early-stage startups can’t survive just by competing with each other; rather they have to help each other grow. Right now, a16z and YC are killing it with their amazing community and network of founders.
  2. In-house talent team: Experience and attitude towards learning always beat everything. Why don’t we put together some smart people who are struggling to find their next series of their life? While they are fighting to find the next magical wave, they could add incredible value to your portfolio companies with their skill set. Since they are about to start the journey of starting up, they would do it passionately for learning and impact also. Design and growth are two skill sets which are hard to find, and it shouldn’t necessarily to any early-stage team 24*7. So, an early stage fund could put together the talent pool of these skill sets in the house.

Grant Cardone has given an interesting 10X rule. It is based on the idea that you should figure out what you want to do, goals you want to achieve, and multiply the effort and time you think it’ll take to do by 10.

Step that I took

What is the solution?

I started thinking about how I could contribute to filling a critical gap in this ecosystem and started my discussion with Amit Agrawal. We began meeting multiple startups to understand the things they are currently looking forward to. During this journey of meeting more than 200 entrepreneurs and investors in a year, we found out that significant value creation for an early-stage startup is missing.

Most of the early-stage startups have the common problem of not being able to figure out product positioning, the right product, and how to monetise their traffic, and, these issues have become the reasons for failures and shutdowns. I have always taken tangible growth as not an option for an early-stage startup.

Either you scale, or you die.

So, in order to build a bridge for the gap, we decided to combine our experiences of building products.

Finally, we came up with the idea under India Goes Global in June 2016 to help startups on this exciting journey to the path of 10x using our experience with growing different products from 0–100 M USD in revenue. Through this mission, we are trying to contribute to this startup ecosystem and help India create multiple profitable businesses.

I have been in a place where you have to pull the curtain on months of pain. Nobody should have to be in that position. Let’s put the effort, together as a fraternity, to make a great ecosystem of opportunity and learning.

Yours truly,

Misbah

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(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)

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